Every person, business and entity has a credit rating. These ratings are a huge part of the economics of lending, borrowing and interest rates. When the United States saw a reduction in their current credit rating, it created ripples throughout the US all the way down the average household and the average consumer.
Whether you plan to tuck money away in savings accounts, IRAs or even fixed rate bonds you may be having second thoughts and for good reason. The way people are spending is completely changing because of this situation. You aren’t alone in wondering what this downgraded credit rating given to the United States means to you.
What does a downgraded credit rating means? Lending money is a risk. There are some consumers that pay back everything that they borrow with interest. There are some that end up defaulting on the loan. In this case, the lender ends up losing money and isn’t always able to the recoup the funds. It helps to know in advance whether a person or business is a risk worth taking.
When the United States’ credit rating was downgraded, it made many lenders a little wary. People already feeling the insecurity of a struggling economy have become even more worried. No one knows what the future holds, but most people believe that there is more bad news to come. Insecurity ran from the top of the financial world all the way to the bottom. Now it isn’t just the US that seems like more of a risk. It is also the United States consumer that has been downgraded as well.
Many families will find themselves paying more when their credit card bill comes in the mail. One of the major effects of credit rating downgrade is that interest rates are going to rise. If your credit isn’t great, you may have noticed that the interest rate for a home or a car is more. Now the US consumer, being considered a higher risk, is going to have to pay more interest on their credit cards.
More of the family’s budget will go to paying the minimum balance on the credit cards. Some who were working towards paying them off and adding to the principal may need to stop in order to just make the monthly minimums. For a family living paycheck to paycheck, this can be huge. It might mean cutting other parts of the budget in order to try to meet these payments and not lose out on their own credit rating.
One of the first things that families and individuals tend to cut in a family budget is savings. Who has the money to purchase fixed rate bonds when you can’t even make the payments for things like your credit card, your electricity or your car?
People tend to look at all the things that they spend in a month and start cutting things considered to be luxuries. In this case, savings accounts don’t put food on the table and don’t require a deposit, so they are one of the first things to go.
Unfortunately, unsure times are one of the best times to save. If you don’t know what is around the corner, you want to have enough cash set aside in case things get worse, or you notice that there is less money coming in or more money going out. If you just keep money at home or stop saving all together, you miss out on the opportunity for your money to work for you.
Savings accounts, IRAs and fixed rate bonds let your money work for you. When you place money in these accounts, you earn interest without really needing to do anything. When times are unsure, this is one way that you can give your money a limited amount of security and expect that it will be able to do good things for your overall financial situation.
While times may come which force you to cut back on your savings and investing, don’t give it up all together. Even if you can only deposit in small amounts, keep making those deposits.
There is a way to keep moving in the right direction in spite of the credit rating drop in the United States. Take the time to tighten the belt and make cuts in your spending where you can. Figure out where your money goes every month.
If there are places that you can make cuts or reduce the amount of money that leaves your home, you will be in better shape. Instead of giving up on savings accounts and fixed rate bonds, consider skipping eating out or some forms of entertainment that could be costly.
Your minimum payment and interest rates on credit cards are going to go up. Because of this, use it as a motivation to get the balances paid off as quickly as possible. If you don’t already have a plan, come up with a way to get the balance paid down so that you no longer own money to the credit card companies. Then you can work to learn how to manage your credit responsibly.
Things will turn around eventually. Over time, credit ratings will realign and economies will once again feel an upturn. When that comes, you will have learned so many valuable lessons that will help you to be a better consumer and a person who continues to strive despite a down turn in the economy.
As you look around, you probably can see that there is a lot of worry and uncertainty in the future. Now, more than ever, it is more important for you to take a look at the way that you spend and save. Look at your investments and make sure that you have made the best decisions possible for your money. Things may get a little worse before they get better, but things almost always rebound. There is just no guarantee of when, or how, it will happen.